Yahoo: Spinoff Marissa Mayer

The cluster-fucking circle-jerk going on at Yahoo right now is pure foolishness. Shares are up 7% on the hopes that either Marissa Mayer is forced out or that the company keeps Alibaba and spins off the core business. Wait, what? Yahoo is officially the master of pipe dreams. A complete 180 from the “we’re going to spin out this Alibaba stake tax-free and save shareholders billions” story we heard last year.

So the Alibaba spinoff idea has gone to shit thanks to the IRS. Regulatory risk ain’t nothing to fuck with. Still – for everyone that’s been burned by Yahoo, activist investor Starboard Value included, they deserve it. This has been billed as one of the greatest sum-of-the-parts stories in a long time. One of those, do the math no brainers. But even with the tax uncertainty, media goers and sell-siders are still selling the SOTPs feel-good story. Now – unless you’re running a multivariate model and have more a decent understanding of probabilities, you have no business opining on Yahoo – it’s that simple.

I hope all the longs in Yahoo go broke. It’s well deserved. In truth – anyone who uses a SOTPs thesis deserves to make the hobo village under the Manhattan bridge their hometown.

In all likelihood, Yahoo pushes ahead with this haphazard spinoff of Alibaba, which is likely be taxed because they don’t can’t find enough of an operating business to spin off with it. The boss of tax-advantaged spin-offs, John Malone, commented on the Yahoo spin, noting, “We’ve never spun off anything that naked.”

Or, the other option, is to keep Alibaba and spin out the core business. WTF. The company can’t even spinoff Alibaba correctly, how complicated do you think it’s gong to get when they start trying to carve out the core business for a spinoff?

Smells of desperation. Firing Marissa Mayer and bringing in a Sheryl Sandberg doesn’t help Yahoo here. There is no free lunch. Either spinoff Alibaba, pay the piper, and sell the core business to anyone (hell even Microsoft would work at this point), or you start stripping this thing apart piece by piece. Keeping Alibaba around isn’t an option – what happens when Alibaba turns out to be a fraud?

Lululemon (LULU) is the latest retailer to feel the Black Friday fuckery. The stock is tanking 6% on an FBR note. It’s now down 17% over the last three months.

The piss poor performance of the stock can no longer be blamed on the great “see through” scandal of 2013. Rather, what we have here is a good old-fashioned case of margin compression. Selling more stuff at cheaper prices.

Well compress this; Lululemon does not deserve to be a public company. It’s been a clown show in the C-Suite and the Sweed, Laurent Potdevin, has done next to nothing to turn around the company since taking over as CEO last year.

People aren’t buying the $100 yoga pants Lululemon is selling. The people visiting the stores are opting for the cheaper clearance stuff. “Who gives a shit if it is see-through, we just want reasonably priced pants.” There’s 2x the number of clearance shit in Lululemon stores this year versus last.

Per the FBR note: “Given increasing competition in women activewear and a competitive men’s market, we think that LULU may not be able to claw back margin with higher selling prices on product.”

More color on the FBR note: “Moreover, she predicts that Lululemon will struggle to keep up double-digit or even low-single-digit  same-store sales growth. The company’s comparisons to previous quarters start to get more difficult in the fourth quarter of 2015 as Lululemon had a solid quarter during last year’s fourth quarter. The company’s nascent men’s division was among the categories in which Lululemon showed strong growth. Ms. Anderson predicts that growth in the men’s division will start to taper off in 2016.”

It’s time for Lululemon to grow up and get itself sold. The Gap’s (GPS) going to continue to eat their lunch with Athleta and At what price does Nike (NKE) show interest? Personally, I’m more interested in seeing what a VF Corp. (VFC) could do with such a brand.

Jeff Ubben’s ValueAct Capital has some of the best long-term returns in the hedge fund game. Everybody loves him. Hell, I love him (no hedge fund homo). He really is a class act.

But at some point, everyone must pay the piper.

Style drift is real folks. And it will kill your fund. Just ask David Einhorn and Greenlight Capital. Learn from the best, even if it is painful as hell to watch.

After getting raped by Valeant Pharmaceuticals, Ubben’s fund is now down on the year. Shares of Valeant aredown 39% year-to-date. The fact that Rolls-Royce is down 32% YTD doesn’t help either. Hell, let’s not forget 21st Century Fox, down 22% YTD too. Then there’s Baker Hughes – down 16% in six month. 

What the hell is Ubben doing in all these pieces of shits? More importantly, what’s the culprit of this fund fuckery at ValueAct? 

At first glance it’s a bit of style drift, but that’s the pussies’ answer. Hell, let’s chalk it up to Ubben losing his edge, investing in shit he has no clue about, and settle in at home with some Natty light and Domino’s.

But you’d be a fucking fool.

Short answer: Don’t bet against Ubben; buy every name in his portfolio.

Long answer: Ubben’s right in his wheelhouse. His portfolio is on point in terms of his historical, beastly return-generating, setup. Looking back to 3Q 2006, ValueAct had 43% invested in tech, 25% healthcare and 6% energy. Today, 33% is in tech, 16% healthcare and 15% energy. It’s not style drift, but some gangnam style machinations going on at some of his top holdings. 

First — Ubben was in Valeant back when many of you were still shitting on yourselves, and still up multiples from his single digit purchase price. Valeant is a cluster fuck right now though. Nobody in the company knows what’s going on. Mike Pearson says he doesn’t think there’s any fraud going on. Ubben’s partner at ValueAct, Mason Morfit, is back on the board to try and sort this shit out.

As for the other detractors, Ubben’s said it before — ValueAct invests in companies undergoing “change.”

Rolls-Royce is a company amidst a “change.” Many question what insight Ubben can bring to an industrial company like Rolls-Royce. Where Ubben is mainly  known for his technology sector prowess.

Clearly, you’re forgetting his follies at Gardner Denver, Rockwell Collins, MSCI — all with holding period CAGRS of 20% to 50%.

Ubben is going to get the Rolls-Royce marine division spun out, with or without Warren East.

21st Century Fox is bit different for Ubben. What I know of Ubben, he’s interested in getting his hands dirty with companies that aren’t properly addressing fundamental industry change. Fox is an ideal example, getting raped by the likes of Netflix.

But at his core, Jeff Ubben is a mother fucking headhunter. Industry dynamics aside, the CEO guillotine is his go-to move.

Rupert Murdoch’s old ass was gone from Fox shortly after Ubben showed up, just like Ubben kicked that crazy fucker Steve Ballmer to the curb at Microsoft. 

Ubben will have his blood.

I really think Ubben has been dreaming about a fight with Ken Chenault too. If American Express, where Ubben owns a smallish stake, loses out on this Starwood and Marriott merger, Ken will find himself spending some time on LinkedIn doing some updating.

Then of courese there’s Baker Hughes. What the hell is Ubben doing with stakes in Halliburton and Baker Hughes? He’s not an oil man, you say. Well you clearly don’t remember Dresser-Rand, where he booked a 47% CAGR.

He’s going to force Halliburton into doing whatever is necessary to get approval for the Baker Hughes’ buyout. Baker Hughes’ shares still have 20% upside before hitting the offer price. Antitrust doesn’t stand a chance here.

Remember, when interviewing for his first job at Fidelity Investments, Ubben followed Peter Lynch into the bathroom to pitch a stock.

Relentlessness is the truest of virtues. Don’t bet against Ubben.